Ethical Leadership: The Case of Wal-Mart - Research Paper Example

Ethical Leadership: The Case of Wal-Mart Research Paper Introduction A labor organization composed of Wal-Mart Stores Inc. employees has been demanding an increase in the minimum annual wage of full-time workers. The organization, named OUR Wal-Mart, has performed boycotts and rallies at Wal-Mart shops all over the nation, happening alongside the start of the holiday shopping period, to demand full-time employment, increased wages, and an abolition of what it calls reprisal of those who protest against the company’s rules (Hirsch & Cha, 2015). A member of the organization stated that, Greg Foran, the new leader of Wal-Mart U.S., “should work with OUR Wal-Mart to improve jobs at our company so that we have an opportunity to join the middle class, strengthen our company’s bottom line and improve our nation’s economy” (Ausick, 2014, para 2). This paper discusses Wal-Mart’s problem in ethical leadership, and proposes and defends solution to this dilemma. The proposed solutions are ethically grounded and based on principles of social justice and quality of life. OUR Wal-Mart publicly specified three issues that the former Wal-Mart leader, Bill Simon, failed to address: weakening brand image, dropping sales, and low wages. The organization refers to a research by Demos-- a public policy research institute-- that reported a higher wage rate for full-time workers of retail corporations that hire thousands of employees could significantly improve the quality of life of hundreds of thousands of women and their families (Tepel, 2014). The worsening performance of Wal-Mart U.S. has also been observed by some professional groups, and they claimed that Simon’s use of smaller stores was not the appropriate solution. The organization also mentions a survey of consumers that reveals “Wal-Mart’s pay and treatment of workers are influencing shopping habits” (Reuters, 2014, para 2). The poll revealed that a quarter of the overall number of the company’s most loyal customers is disappointed by how Wal-Mart handles its employees, and that they, consequently, avoid shopping at the stores (Reuters, 2014, para 2-3). Wal-Mart’s Dilemma Although Wal-Mart’s terrible business practices have been known for several years, workers were not inclined to protest against it; but OUR Wal-Mart changes it. Since these courageous employees are not unionized, they were risking their jobs by protesting. In 2012, Wal-Mart publicly announced $444 billion in profits. Robson Walton, the successor of Wal-Mart, received roughly $420 million in 2011, while the company’s employees receive a meager annual salary of $15,500 (Ausick, 2014). The former CEO of Wal-Mart, Michael Duke, received a yearly salary of $35 million, which is a glaring gap from the annual wage received by the average employee. The company rakes in billions in profits by coercing its employees to work 16-18 hours daily without overtime pay; dispossessing employees of the right to freedom of association; failing to equip workers with basic safety tools; refusing to provide legal maternity benefits and leave to female employees (Greenbaum, 2015). This poor treatment of Wal-Mart’s employees is a case of leadership failure. Lake Research Partners publicly disclosed its findings in a new survey of consumers in 2014. The group verifies that concerns about the poor working conditions of Wal-Mart’s employees are affecting shopping preferences and practices. As stated in the poll, “25% of Wal-Mart’s most loyal customers are shopping there less because of the company’s treatment of workers” (Reuters, 2014, para 2). Furthermore, among those who seldom or never shop at Wal-Mart stores, many admit it is due to the unjust treatment of employees and unreasonable wage rate. According to Lake Research (Tepel, 2014, para 3): Wal-Mart’s reputation as a low-paying employer is becoming a growing problem for the company’s bottom-line. The good news for Wal-Mart is that over a quarter of consumers confirm that if Wal-Mart’s treatment of workers improved, their likelihood of shopping at the retailer would increase. OUR Wal-Mart has been voicing out and publicly revealing Wal-Mart’s inconsistent scheduling, low wage, and unlawful reprisal of employees. The organization is asking CEO Doug McMillon to openly oblige to paying employees an annual salary of $25,000, terminating temporary and part-time job, and abolishing reprisal of employees who voice out protests against company policies (Ausick, 2014). The organization believes that the company’s leadership, beginning from the Walton successors, has ruined the company’s reputation. This poor leadership is manifested by the adversities and poverty they created for the families of its employees, the indefensible absence of effective supervision of its supply chain, and suspected corruption, bribery, and consequent whitewash (Tepel, 2014). Charmaine Givens-Thomas, OUR Wal-Mart’s member and company’s shareholder, emphasized the relationship between customer service issues and recruitment issues (Reuters, 2014, para 6): We do not have enough trained associates in our stores to keep our shelves stocked. Backrooms are piling up because there aren’t enough people to get things on the floor. So we struggle to deliver the customer service we pride ourselves on. And without excellent service, sales suffer. Our company must invest more in associates and give them the respect they deserve, so we can be even more productive, which benefits us as associates and shareholders. We need a leader at the top who thinks only of what is best for our company, its associates and all shareholders. Thus, ethical leadership should be the main priority of the company. Leaders have the obligation to provide a moral example for the members of their organizations and to identify those corporate activities which could be adverse to the stakeholders on the whole. Leaders become ethical role models when they are behaving in a morally good, just, and right way (Resick et al., 2013). Poorly treating workers, unfairly compensating them and allegedly getting involved in bribery and other dishonest activities demonstrate that Wal-Mart’s leadership should step up in building an ethical corporate environment. The unjust practices that Wal-Mart has been linked to are widely known and as an outcome, a large number of people have formed an unfavorable opinion of Wal-Mart. Unluckily, consumer habits strongly oppose this unfavorable opinion. Indeed, the company has maintained its profitability despite numerous trials and findings that have damaged its corporate reputation (Nandagopal & Sankar, 2009). It is claimed that the company is unethical, damages the U.S. economy, and adversely impacts communities wherein the stores are situated. The fact is that the 2008 U.S. economic downturn generated the ideal conditions in which Wal-Mart prospers; customers with strict budgets seek retailers with the cheapest products. Paradoxically, this same economic downturn has worsened two of the most adverse effects of the business practices of Wal-Mart—household income and unemployment (Nandagopal & Sankar, 2009). In spite of its intense efforts to hide its unethical business practices, it has become very apparent that Wal-Mart is truly a problematic company in terms of ethical leadership. The retail magnate keeps on offending its employees, communities, suppliers, and other stakeholders. Unfortunately, the American people have lost huge amounts of dollars from their yearly earnings; they have also become more and more apathetic to the impact of Wal-Mart’s unethical business practices in an effort to sustain their particular standard of living. Although consumers keep on saving money at Wal-Mart, as a whole the American people do not seem to completely realize that such personal gains significantly damage the wellbeing of communities and the U.S. economy in general (Puglia, 2013). Such pattern has boosted the enduring success of Wal-Mart since the 2008 economic downturn. In truth, since the recession started, the company has experienced escalation in profit and earnings every year (Buttny, 2009). There are numerous businesses that gain customers by being knowledgeable of stakeholder theory and becoming intensely engaged in CSR. However, since the retail market has eventually become a quasi-monopoly, Wal-Mart rests above it all and appears to be resistant to business ethics; the company still holds the largest market share, while at the same time continuing to be unethical. It is a fact that no company can be successful without leaders, and leaders have a huge obligation to oppose and stop these unethical business practices. Ethical, Socially Responsible, and Sustainable Solutions for Wal-Mart’s Leadership The ethical responsibility of leaders, or what Linda Trevino and her associates refer to as ‘ethical leadership’, is a fusion of being a moral individual and being a moral leader. Being a moral individual depends on a set of major attributes like trustworthiness, honesty, and integrity (Ogunfowora, 2014). Integrity requires not just trustworthiness or honesty but also concern for the wellbeing of the different stakeholders. Integrity also requires steadfast compliance with an ethical code of conduct. Hence, being a moral individual proposes that the person is trustworthy and possesses integrity. Besides these attributes, being a moral individual also requires criteria of personal integrity, being transparent, concern for the wellbeing of others, and doing what is right (Ploeger & Bisel, 2013). Obviously, the principle of ethics is doing what is right, particularly under challenging situations, and that requires being capable of identifying and justifying the right thing to do. To be capable of making sound decisions in the face of a difficult ethical dilemma, a leader has to be broadminded about learning from different sources about the dilemma while ensuring stakeholders are protected and trying to treat them justly in the process of making and implementing decisions (Ogunfowora, 2014). To be capable of making ethical decisions, a leader has to sincerely enhance his/her personal standards of moral behavior. Personal standards enable a person to contemplate a decision with a definite reasoning in mind. Trevino and her associates explain that when decisions requiring ethical thinking have to be made, the moral leader abides by her/his basic morals, attempts to be just and objective, shows concern for the wellbeing of his/her stakeholders, and conforms to ethical principles of decision making (Greenbaum et al., 2015). However, being a moral individual is not the sole prerequisite for becoming an ethical leader. Ethical leadership also involves being an ethical manager, which requires acceptance that the manager or leader functions as an example for other people in all his/her obligations. It also implies giving rewards and punishment in relation to the moral and immoral choices made by their people, with the intention of showing acceptable and unacceptable behaviors in the company. Furthermore, ethical leadership requires open and effective communication of values and ethics. One issue that often surfaces in thinking about ethical leadership is whether individuals can be regarded ethical leaders in the workplace if they behave immorally in their own lives (Ploeger & Bisel, 2013). Since the character of an individual is mirrored in all his/her behaviors and decisions, such contradiction would negatively affect the image of that individual in general. Ethical leadership is a major problem for Wal-Mart, as revealed by the allegations made OUR Wal-Mart and other critics against the company. CEO Mike Duke publicly stated in 2011 that “problems at Wal-Mart Stores Inc. have been more severe than management expected and will take time to fix… Some of the pricing and merchandising issues in Wal-Mart U.S. ran deeper than we initially expected, and they require a response that will take time to see results” (Denning, 2011, para 9). It appears more probable that if Wal-Mart’s leadership continues to focus on merchandising and pricing problems, it will not be long before the company declares bankruptcy. Wal-Mart’s leadership obviously does not know that the company is suffering from a lethal illness—absence of ethical leadership. Focusing on merchandising and pricing concerns is not going to help the company. Rather, its leadership has to re-create itself and gear itself toward ethical management by, primarily, being just to its workers and hearing their plights. Wal-Mart has a number of strong points. It has a huge volume of assets and resources. Moreover, it is a good thing that the company is embarking on a wide-ranging restructuring of its environment and energy policies and appears committed to becoming a role model of sustainable business (Puglia, 2013). However, the company still suffers from serious weaknesses. It has a disastrous legacy of extremely unfriendly traditions in labor relations. Consequently, it is possible that the company is lacking with empowered, motivated, and skilled employees that can certainly enable the constant innovation that is required to positively transform Wal-Mart into an ethical, socially responsible, and sustainable company. Furthermore, Wal-Mart does not invest in pleasing its customers. The company is the typical modern company with a belief that “you buy what we sell, because it’s cheaper” (Denning, 2011, para 4). Unfortunately, since Wal-Mart no longer has that ‘cheaper’ advantage, its business model is ruined. Therefore, the company has to reform its business model based on the principles of ethical leadership. Its leaders will fail to save the company if they continue to focus on merchandising and pricing concerns. They have to reevaluate and reconstruct Wal-Mart’s entire business model. A commitment to the community, employees, customers, and other stakeholders should be the focus of Wal-Mart’s leaders. Stakeholders give importance to transparency and reliability hence the company should place emphasis on communicating with people and/or groups that truly matter most. This could be accomplished through various means, such as granting freedom for employees to voice out their concerns or problems with the company’s policies. Fundamentally, all management levels must be actively involved in the process of stakeholder engagement (Resick et al., 2013). Ethical leaders believe that the risk management features of corporate social responsibility (CSR) are their primary concern. Risk management is largely about sustaining the financial strength and good reputation of the company. Ethical practices like preventing adverse media exposure, responsible and transparent financial reporting, and fair treatment of workers, will help Wal-Mart gain good corporate reputation. The following steps could further help the company resolve its leadership problems with regard to ethics and social responsibility. First, effective leaders are equipped and ready to question the reasoning of their industry. Wal-Mart’s leaders should be capable of challenging the company’s logic that selling cheaper ensures greater profit and customer loyalty. Such focus on merchandising and pricing and neglect of its employees’ welfare only harm the company in the long term. Second, Wal-Mart’s leaders must be willing to do the right thing, stick to it, and make it worthwhile. It is an acceptance that at times there is an ethical, not only profitable, bottom line. There are actions or decisions that must or must not be made, because there are human impacts that can be prevented, even though at a certain price. Third, recognizing the idea that leaders build motivation, and at times the bottom line is the incorrect motivation. The shareholders’ interest is frequently mentioned as a justification against CEOs using their own reasoning to identify and implement the right thing to do, for the shareholders’ interest centers on the maximization of financial returns (Buttny, 2009). Leaders must be granted a certain extent of leeway to exercise their own judgment, especially with regard to ethical leadership. This is what is lacking in Wal-Mart’s leadership. The company is highly motivated by a wrong incentive thus its employees suffer from poor motivation. Principles of social justice are another way for Wal-Mart’s leaders to think about ethical judgments. It requires objectivity and fairness on the leader’s part, especially with regard to the crucial challenges and opportunities that will stem from the decision. John Rawls has talked about the justice principle in relation to an idea he calls ‘distributive justice’, which obliges leaders to make judgments outside a ‘veil of ignorance’ that indicates that they are not aware of the outcomes of their decisions (Resick et al., 2013). Distributive justice obliges leaders to consider the fairness and objectivity of the decision to any stakeholder that will be affected. Likewise, Immanuel Kant argues that justice can be considered through the notion of ‘categorical imperative’; specifically, one must simply make a specific decision or behave in a specific manner if the decision maker can prove or accept that it would be safe and sound if any individual in the same circumstance decided or behaved that way (Resick et al., 2009; Greenbaum et al., 2015). Therefore, in taking justice into account, leaders have to ask themselves whether their decisions and actions comply with the principles of social justice. Numerous leaders find it hard to talk about and at times even identify ethical problems, a problem that the management thinkers Frederick Bird and James Waters refer to as ‘moral muteness’ of leaders (Ogunfowora, 2014). Wal-Mart’s leaders have to begin understanding the needs of its employees and other stakeholders, finding out what could satisfy them. If employees are treated with respect, their performance would be productive, and they could be more interested in looking for other means that would contribute to the wellbeing of the company. For Wal-Mart to implement this type of a business model, it would necessitate a transformation from an ‘inside-out’ point of view of generating profit for its shareholders to an ‘outside-in’ approach that constantly looks for means to empower and motivate its employees, customers, and other stakeholders (Denning, 2011). Wal-Mart’s leadership would have to take a leap of faith and grant what its stakeholders, especially its employees, want. One of the disgraces of capitalism is the prevalence with which industries become effective monopolies, and as a result, make that industry completely harmful and unproductive to the nation’s economy. A perfect example is Wal-Mart’s control of the retail market for many decades. Even though the company may declare that they recognize, and take part in, a stakeholder welfare perspective of leadership, a more thorough analysis of the numbers has shown a strategy that has generated the reverse outcome. The fact is that Wal-Mart’s leadership has created a notorious domination of its stakeholders, particularly its employees (Buttny, 2009). Moreover, the enduring outcomes of the 2008 economic downturn have weakened the purchasing power of the American people. The joint impact of the present economic circumstances of the U.S., and Wal-Mart’s unethical activities, has been to reveal the retail magnate as a danger to its stakeholders and the U.S. economy in general. Caught in hardships, the American people have been left with no choice but to keep on shopping at Wal-Mart to save some cash, more important than the economic situation of their country and communities. The situation makes it appear that a walkout or drop in the company’s profits is anything but a practical hope to hold for American consumers. Conclusions Nevertheless, ethical leadership, alongside government intervention, could oblige Wal-Mart to act in a more ethical way. In many instances government intervention in the business domain is needless and an obstacle, but in the case of Wal-Mart governmental enforcement of CSR through legislative actions is required. The same goes for ethical leadership. American companies known for being socially responsible, sustainable, and ethical, such as Amazon, Google, Costco, and Johnson & Johnson, have a strong foundation for ethical leadership. Wal-Mart’s leaders could learn from these most loved American companies. References Ausick, P. (2014, July 24). Walmart Employees Group Cites Simon’s Leadership Failure. Retrieved from http://247wallst.com/retail/2014/07/24/walmart-employees-group-cites-simons-leadership-failures/. Greenbaum, R. et al. (2015). Why do leaders practice amoral management? A conceptual investigation of the impediments to ethical leadership. Organizational Psychology Review, 5(1), 26-49. Buttny, R. (2009). Wal-Mart’s presentation to the community: discursive practices in mitigating risk, limiting public discussion, and developing a relationship. Discourse & Communication, 3(3), 235-254. Denning, S. (2011, February 23). Wal-Mart and the Futility of Traditional Management. Retrieved from http://www.forbes.com/sites/stevedenning/2011/02/23/wal-mart-and-the-futility-of-traditional-management/. Hirsh, C. & Cha, Y. (2015). Employment Discrimination Lawsuits and Corporate Stock Prices. Social Currents, 2(1), 40-57. Nandagopal, R. & Sankar, A. (2009). Wal-Mart’s Environmental Strategy. Asian Journal of Management Cases, 6(2), 119-133. Ogunfowora, B. (2014). It’s all a matter of consensus: Leader role modelling strength as a moderator of the links between ethical leadership and employee outcomes. Human Relations, 67(12), 1467-1490. Ploeger, N. & Bisel, R. (2013). The Role of Identification in Giving Sense to Unethical Organizational Behavior: Defending the Organization. Management of Communication Quarterly, 27(2), 155-183. Puglia, D. (2013). N. Lichtenstein, The Retail Revolution: How Wal-Mart Created a Brave New World of Business. Journal of Consumer Culture, 13(1), 70-72. Resick, C. et al. (2013). Ethical leadership, moral equity judgments, and discretionary workplace behavior. Human Relations, 66(7), 951-972. Reuters (2014, June 6). At Wal-Mart’s Annual Shareholders Meeting, Shareholders Vote for Change of Course and New Leadership. Retrieved from http://www.reuters.com/article/2014/06/06/ufcw-at-walmart-meeting-idUSnBw065469a+100+BSW20140606. Tepel, N. (2014, June 10). Wal-Mart Employment Policies Affect Sales. Retrieved from http://laborpress.org/national-news/3864-walmart-employment-policies-affect-sales. Read More